Taking Shortcuts

Sun Trust Bank developed a system they called 'Agency Shortcut'.  Why that name was given to the system may be questionable, but the results of mortgages processed by the system are not. The results were billion of dollars in mortgages issued by Sun Trust but sold to us via Fannie Mae and Freddie Mac.

The system enabled Sun's salespeople to enter false information into a Fannie Mae system known as Desktop Underwriting.  Apparently, this system had very little controls built in because underwriters in Sun Trust’s due diligence department could not stop the loans from being sold to Fannie or Freddie. Sun even put it in writing to the sales people; they refer to the Agency Shortcut system as follows: “It’s a SISA (Stated Income/Stated Asset) at full doc pricing,” which means that the loans carried the same interest rate as fully documented loans. Not only was false information entered, the bank waived property inspections and did not require the borrower to sign the document that allows the Internal Revenue Service to provide a prospective lender with a borrower’s income. In addition, borrowers of these loans could have a debt-to-income ratio of up to 64.99 percent, an onerous level.  

So, will the SEC and the government do something here?